Hong Kong’s Move: OTC Crypto Traders Braced for Universal Anti-Money Laundering (AML) Regulations

Crypto News- In a bid to bolster oversight on over-the-counter (OTC) digital asset trading, Hong Kong’s government is set to apply the same stringent regulations as those governing retail digital asset trades.

The announcement, made on February 8, unveils the commencement of a “Public Consultation on Legislative Proposals to Regulate Over-the-Counter Trading of Virtual Assets,” slated to run until April 12.

Key among the proposals outlined in the consultation paper is the incorporation of OTC trading within the purview of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), set to take effect from June 2023. Typically, OTC transactions occur directly between parties without the involvement of a centralized exchange.

Hong Kong’s Move: OTC Crypto Traders Braced for Universal Anti-Money Laundering (AML) Regulations

Under the proposed framework, only “spot trade of any virtual assets for any money” would fall under the OTC category, with broader virtual asset trades remaining under the oversight of licensed virtual asset service providers (VATPs). Peer-to-peer transactions would also lie beyond the scope of OTC regulations.

The government estimates approximately 200 physical OTC outlets (including ATMs) and 250 digital platforms or active online posts facilitating buying and selling virtual asset services in Hong Kong. Compliance requirements for OTC traders would mirror those of other virtual asset service providers, necessitating licensure from the Commissioner of Customs and Excise. Additionally, traders would need to furnish details such as a local management office address, correspondence address, and location for storing books and records.

Licensees would be restricted to transferring assets solely from registered wallets to client wallets, with clients mandated to demonstrate ownership and control over their wallets.

Furthermore, OTC traders would be prohibited from dealing in virtual assets not listed on retail VATPs or stablecoins issued by unlicensed entities as per the Hong Kong Monetary Authority.

In a related development, Hong Kong’s financial services department, on February 2, underscored a deadline for unlicensed virtual asset service providers (VASPs) to apply for approval, warning that those failing to secure approval must halt operations by May 31.